Judge Tentatively Rules on Side of Mail Boxes Etc

LOS ANGELES – At a hearing on August 25, Judge William Highberger of the Superior Court of California gave a tentative ruling in the Morgate v United Parcel Service lawsuit, declaring its ruling will likely agree with franchisor Mail Box Etc. on its defense of its disputed contract term by franchisees. That dispute is over UPS acquiring the franchise system in 1993, and then making changes that dramatically affected the business of franchise owners. 175 franchisees who did not convert to the new brand of The UPS Store allege the franchisor breached its contracts by forcing the conversion.  Different aspects  of the franchise contracts are in dispute, mainly dealing with exclusive territory, transfer rights and pricing.

But the judge gives the view that the “New MBE” and its parent or affiliates were not acting in excess of their rights as assignee of the “Old MBE.”  He states that in maximizing the profit or business opportunity for the new company there is no showing that the franchisor was knowingly breaching its contract obligations in regards to renewal. He also gives the view that “the most specific express term is that a renewing franchisee would have to agree to the same form contract being offered at the time of renewal by the franchisor to new franchisees. Here, that is what the franchisor did.”  Judge Highberger said UPS/MBE had the express right to change the trademark, which it did at the time of renewal

Mail Boxes Etc. has not returned phone calls requesting comments. Franchisees and their attorney did not wish to make comment.

The decision is as follows:

Case Number: BC294647   Hearing Date: August 25, 2009   Dept: 307

BC294647 Morgate LLC v. Mail Boxes Etc.
Aug. 24, 2009 Tentative Re Further Status Conference
Non-Converting Store Claims:

1. [Note: No argument will be solicited on this issue today or at later hearings; the matter is under submission.]

While the Court has not yet finalized its draft Statement Of Decision, its analysis has proceeded far enough that it is prepared to state that the most likely decision will be to agree with defendants’ interpretation of the disputed contract term. While the renewal terms have some ambiguity (contrary to defendants’ threshold contention), virtually (or perhaps literally) none of plaintiffs’ “extrinsic” evidence sheds any light on the parties’ mutual intent as to such ambiguous terms at the time the agreement was made in 1993. The post-formation interactions between the original contracting parties and between the original franchisor’s assignee and the franchisees shed no light on the interpretation of the ambiguous terms because they do not involve going through the franchise renewal process, as such, as between these parties, and, separately, the contract has express terms to exclude any use of “previous course of dealing or usage of trade” as evidence in disputes over contract interpretation. None of the post-formation statements which plaintiffs can attribute to defendants or any of them or to their agents acting in the course of their agency constitute any admission that New MBE or its parent or affiliates knew or conceded it or they were acting in excess of their rights as assignee of Old MBE’s rights in the 1993 Franchise Agreement. That New MBE and its parent or affiliates would wish to maximize the profit or business opportunity for New MBE or its parent or affiliates is not any showing that the franchisor was knowingly breaching its contract obligations in regards to renewal.

In the absence of any helpful extrinsic evidence, basic rules of construction then guide the analysis, and the most important rule is that the express term controls rather than the general terms. The most specific express term is that a renewing franchisee would have to agree to the same form contract being offered at the time of renewal by the franchisor to new franchisees. Here, that is what the franchisor did.
Franchisor also had the express right to change the trademark, which it did at the time of renewal. The various cases cited by defendant involving other franchise name changes are persuasive authority (though not technically controlling) that this franchisor’s conduct in exercising its contract right to force a name change of the franchised mark (at the time of renewal) was legally permissible. Most or all of those cases actually involved more extreme situations where a trademark change was permissibly forced during the term of a written contract, not merely upon its renewal.

[Comment from counsel today on the following issues will be appreciated:]
2. Once a draft from the Court is circulated, the Court intends to solicit comments using the process under C.C.P. § 634 and CRC 3.1590(f). It does appear that any timely appellate review will have to be by writ since the case is not postured presently for the entry of an appealable judgment or order, to the best of the Court’s understanding, and notwithstanding the Court’s prior efforts to urge counsel to put it into such a posture.

3. The parties are encouraged to reevaluate their settlement positions and to renew settlement negotiations. This will probably have to await the action of the Court of Appeal on any writ petition which may be filed. This is a business dispute, not a personal injury case, and it deserves a business solution rather than more litigation.

4. If the claims of the non-converting franchisees cannot be settled, then the next question is how to take the claims of these three “lead” plaintiffs to trial and how the claims of the other 100+ non-converting individual plaintiffs can be resolved on the merits by trial or otherwise in as time-efficient a fashion as possible. The Court does not intend to be in trial on this case for months on end.

Class Claim:

• 1. Are plaintiffs desirous of using their recent filing as an opening brief in support of their request that defendants share the cost of giving notice or do plaintiffs wish to make a more extended factual and legal showing? If the wish to add to their submission, when can plaintiffs’ opening brief be submitted? The Court would like to proceed to make a ruling without undue delay and would propose that the matter come on for hearing (assuming more briefing is desired by one or both sides) 16 court days after the opening brief is filed (i.e. using the C.C.P. § 1005 timing).
• 2. What is defendants’ basis for moving for summary judgment? What additional discovery is likely to be needed or desired by plaintiffs before an opposition to any such motion on the merits can be filed?
• 3. What discovery do defendants wish to take in connection with their contemplated motion to decertify? Would a motion to decertify come before or after the anticipated motion for summary judgment?
• 4. Is there any reason to think that ADR at some point is useful for the class claim

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Related Reading:

• CVN Gives Final Overview of UPS Trial
• Attorney Argues 'Evolution, Not Revolution' in UPS Trial
• UPS Defends Right to Change MBE at Trial
• Mail Boxes Etc Franchisees Head to Trial with Crucial Exhibits in Hand
• Judge Promises One-sided Decision after UPS Trial Ends
• UPS Denies Existence of Feasibility Study, Now Unsealed as Evidence
• UPS, Mail Boxes Feud Heads to Court